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The end of the "death tax": dangerous for your health?

Posted by Christopher Shea  February 20, 2009 10:59 AM

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angel-of-death-756351.jpg
The angel of death

In this grim economy, it's hard to find a good investment, but a Kennedy School economist has a tip for you: any company that makes technology used in intensive-care units.

The reason, explains Jeffrey Frankel, who served on the Council of Economic Advisers under President Clinton, has to do with the estate tax -- more precisely, what is slated to happen to the tax, which falls on the holdings of the wealthiest Americans after they die, over the next two years.

Under President Bush, the Republicans abolished the estate tax, full-stop, effective in 2010: However large your estate, you will be able to pass it on to your heirs without the government taking a bite. To minimize the effect of the tax cut on long-term budget forecasts, however, Republicans eliminated the estate tax for 2010 only. Without new legislation, it will come back from the grave in 2011.

With Democrats now in charge of Congress and the Presidency, an extension of the cut into perpetuity appears unlikely. However, given the recession, Congress also seems unlikely to "raise" taxes by restoring the estate tax for 2010.

Therefore, as things stand now, potential heirs stand to gain tremendously if their parents hang on until 2010 but do not survive that year.

In 2010, heirs will face an incentive to let their parents pass away. But for now the economic logic points to helping them survive past Dec. 31. "Six years ago , I used to say this as a joke," Frankel writes. "It was widely assumed that this absurdity in the tax law would be fixed."

But now, he writes, "tax-motivated ICU production in 2009 seems a serious proposition."

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